The future of the European Union: UK Government policy - Foreign Affairs Committee Contents

4 The Prime Minister's agenda: reform, renegotiation, referendum

93. The Prime Minister set out his response to the challenges facing the UK and the rest of the EU as a result of closer Eurozone integration, as well as other factors, in his long-trailed EU policy speech of 23 January 2013, which he delivered at the London headquarters of the US media organisation Bloomberg. In his speech, the Prime Minister set out three linked elements of policy: reform of the EU; securing a "new settlement" for the UK in the EU; and holding an 'in/out' referendum on the UK's continued EU membership.[215] The boundary between the EU reform that the Coalition Government is pursuing now and the content of the Prime Minister's desired "new settlement" for the UK is not fully clear, because the Prime Minister in his speech did not define in any detail the "new settlement" that he seeks (see paragraphs 95-104). However, the Foreign Secretary made clear in his evidence to us that any formal negotiations with EU partners on a "new settlement", and the holding of an 'in/out' referendum, were matters for any Conservative Government elected in the 2015 General Election, not for the current Coalition. Apart from any other factors shaping this plan, the Prime Minister would seek to base any "new settlement" negotiations on the findings of the Balance of Competences Review, which is due to conclude only in late 2014 (see paragraphs 15-19).[216] The Prime Minister then plans in the Conservative Party Manifesto for the May 2015 General Election to "ask for a mandate from the British people for a Conservative Government to negotiate a new settlement with our European partners in the next Parliament". Mr Cameron would plan to negotiate such a "new settlement" in time to put it to the electorate in an 'in/out' referendum by the end of 2017. We provide a timeline of selected scheduled events in the EU between now and then as Annex 2.

94. The Prime Minister's policy appears to flow from the view that an 'in/out' referendum on the UK's continued EU membership will be held at some stage. In his speech, Mr Cameron argued that it would be "wrong to ask people whether to stay or go before we have had a chance to put the relationship right", and he has repeated this view subsequently.[217] This position triggers the wish for a "new settlement" for the UK in the EU. In his speech, Mr Cameron said that, if the UK could negotiate the kind of "new settlement" that he seeks, he would campaign "with all [his] heart and soul" in his planned 'in/out' referendum for the UK to remain in the EU. For the Prime Minister, reform of the EU, in turn, would be both part of this "new settlement" and an enabler of it.

EU reform

Pre-Bloomberg speech

95. In its 2010 Programme for Government, the Coalition committed itself to pursuing two specific EU reform measures: "limit[ing] the application of the Working Time Directive in the UK"; and establishing a single seat for the European Parliament, in Brussels.[218] In its Mid-Term Review and updated Programme for Government, published in January 2013 before the Prime Minister's EU speech, the Government reiterated its support for a single EP seat; but this would require EU Treaty change.[219] On the Working Time Directive, the Government said that it had "built an alliance of Member States to maintain support for the individual's right to opt out of the working hours limit".[220] The Coalition also highlighted its positions on the EU's long-term budget for 2014-2020 (the Multiannual Financial Framework, MFF), banking union, the EU growth agenda and the Balance of Competences Review. There was more emphasis than in the 2010 document on completing the Single Market and reducing EU regulation.

96. Before the Prime Minister's January 2013 speech, several witnesses said that the Government appeared to lack an overall vision or strategy for the EU.[221] They called on the Government to develop one, or at least to put forward some specific EU reform proposals to enable it to demonstrate commitment and exercise influence.[222] The most striking contribution we received was from Lord Howell, immediately after he left the Government in September 2012 having been an FCO Minister of State. Lord Howell argued bluntly that the EU's traditional integration model was no longer 'fit for purpose'. He called for the unravelling of the existing EU acquis and the establishment of a different EU model, based on the principles of "decentralisation, diversity and flexibility". Lord Howell called on the Government to pursue a major process of "intellectual conversion" across the EU, akin to that which took place in association with the Single Market programme in the 1980s, in order to find allies and move thinking in the EU from the old model to the new. Lord Howell explicitly distinguished the kind of positive, UK-driven but pan-EU reform process that he wanted the Government to pursue from a "defensive" policy focused on the UK-only repatriation of powers and an 'in/out' referendum.[223]

Post-Bloomberg speech

97. In his January 2013 speech, Mr Cameron described himself as a "British Prime Minister with a positive vision for the future of the European Union". He identified three challenges facing the EU, namely: establishing "the right governance and structures" for the Eurozone; increasing competitiveness, to respond to the shift eastwards and southwards in global economic power; and increasing democratic accountability and consent. Mr Cameron argued that if the EU did not address these challenges successfully, there was a risk that it would fail; and that, under those circumstances, the UK would be more likely to leave. Mr Cameron thus argued that the EU should reform along the lines that he was advocating both in its own direct interest and in order to make a UK exit less likely.

98. Mr Cameron set out five principles underpinning the kind of EU that he would like to see:

i) Competitivenessto be achieved mainly by completing the Single Market (primarily in services, energy and the digital economy), signing free trade agreements with third countries, and exempting small firms from EU regulation. Mr Cameron suggested that reducing EU bureaucracy and unwarranted spending, streamlining EU decision-making, and perhaps establishing a "Single Market" configuration of the Council of the EU,[224] should also contribute to the competitiveness agenda.

ii) Flexibility, to enhance the EU's competitiveness and speed of response, andmost importantlyto allow for different levels of integration between the Member States (see paragraphs 133-143).

iii) The principle that power must be able to flow back from the EU to Member States.

iv) Democratic accountability, which Mr Cameron associated exclusively with establishing a more significant role in the EU for national parliaments; and

v) Fairness, which Mr Cameron defined as ensuring that new arrangements for the Eurozone worked fairly also for non-Eurozone Member States.

99. In many respects, the EU reform agenda that Mr Cameron set out in January 2013 included themes that had been longstanding ones for him, and to some extent for the Government as a whole. For example, to describe the kind of EU that they would like to see, the Prime Minister and the FCO have used close variants of the phrase "with the flexibility of a network, not the rigidity of a bloc" on at least five occasions since autumn 2011.[225] In his speech, to try to parry doubts about the degree of influence that the UK might wield, the Prime Minister cited measures which the Coalition has already secured in the EU to try to show that the UK could achieve further reform there in future.

100. In other respects, Mr Cameron's vision appeared to us to be strikingly ambitious. He cast himself in the role of an "heretic" challenging EU orthodoxies. This applied most strongly to his calls for power to flow back from the EU to Member States, and for the EU Treaties to say that the totemic objective of "ever closer union" is not shared by all Member States. Mr Cameron explicitly cast his preferred vision of the EU as an alternative to that of "ever closer political union". His preferred conception was of the EU as a "flexible union of free Member States who share treaties and institutions and pursue together the ideal of cooperation".[226]

101. We commend the Prime Minister for launching an ambitious agenda for EU reform in his January 2013 speech, and especially for couching his language explicitly in pan-EU rather than UK-only terms. With the Eurozone and several of its Member States in crisis, and popular disaffection with the EU on the rise, it would be hard for others in the EU to argue that change is not required.

"New settlement" for the UK?

102. In his January 2013 speech, Mr Cameron did not clearly distinguish the "new settlement" which he seeks for the UK in the EU from the reform vision that he set out for the EU as a whole. Mr Cameron defined the "new settlement" that he wants to put to UK voters as one in which the UK is:

"protected by fair safeguards" in the Single Market; and

"at the forefront of collective action on issues like foreign policy and trade"; and one which is:

"free of spurious regulation"; and

"subject to the democratic legitimacy and accountability of national parliaments"; and in which:

the door is "firmly open to new members";

"Member States combine in flexible cooperation, respecting national differences not always trying to eliminate them"; and

it has been "proved that some powers can [...] be returned to Member States".

Of these criteria, the last appears to be the most demanding, because there is the least scope for argument as to whether or not it has been achieved (although there is some such scopesee paragraph 104).

103. The Prime Minister's speech was notable as much for what it did not say as for what it did. Mr Cameron did not use the words "renegotiate" or "repatriate". Apart from an implied reference to the Working Time Directive, Mr Cameron did not outline any specific reforms or proposals that he wished to pursue. This was the case even with respect to measures that he had previously suggested that he supported, such as the repatriation of powers in social and employment matters.[227] In his January speech, Mr Cameron thus left a large degree of leeway as to the content of the "new settlement" that he might seek. The prominent US academic and commentator Professor Andrew Moravcsik suggested that "more Europe but less Europe pretty much lets a future government call anything a success".[228] When we asked the Foreign Secretary how he would determine whether the Government had secured a "new settlement" that was acceptable, Mr Hague said that he would be prepared to put a deal to the electorate when he could say that:

the European Union of the future will be more democratically accountable; that power will be able to flow to nation states in some instances, not just towards the centre; that it is being operated fairly to all concerned, including those outside certain structures such as the Eurozone; and that we have won the ability to do what we need to do to allow us to compete in the most intensively competitive global economic environment; and that there is the flexibility for the EU to be able to evolve properly in the future.[229]

During his evidence session in February, Mr Hague told us four times that the Prime Minister was not at the stage of going beyond principles and setting out detailed negotiating positions or 'red lines'.[230]

104. On occasions other than his January 2013 speech, the Prime Minister has referred somewhat more specifically to changes that he would like to see as part of any "new settlement" for the UK in the EU. For example, in July 2012 he said that "whole swathes of [EU] legislation covering social issues, working time and home affairs should [...] be scrapped".[231] Mr Cameron told the Liaison Committee the same month that he would like to see powers returned from the EU, and he reaffirmed his commitment to the Conservative Party's 2010 General Election manifesto, which sought a mandate to negotiate the return of powers on criminal justice and social and employment legislation.[232] Detailed proposals have also been put forward by the Fresh Start group of Conservative backbench MPs.[233] The Foreign Secretary wrote the foreword to Fresh Start's "Manifesto for Change" in January 2013, where he said that "many of the proposals are already Government policy, some could well become future Government or Conservative party policy and some may require further thought".[234] Ideas for possible UK "new settlement" proposals that have been floated in the debate have a range of different statuses in EU law, including:

i) matters that are purely for the UK, such as arrangements for transposing EU Directives into UK law, or for national parliamentary scrutiny in the UK of EU business;

ii) repeal or amendment of secondary EU legislation for the whole of the EU (examples might include the Working Time Directive, or the Free Movement Directive, or legislation on the Common Agricultural Policy, Common Fisheries Policy or regional policy);

iii) EU Treaty amendment affecting all Member States (such as to repatriate a competence from the EU to the national level, institute more 'emergency brakes', establish a general Single Market safeguard at Treaty level, or require the European Parliament to have only one seat); and

iv) EU Treaty amendment to institute one or several further UK opt-out(s), such as from EU social and employment law.

'Repatriation' might take place through any one of ii), iii) or iv), depending on whether repatriation meant, respectively, devolving greater control to Member States within a given piece of EU policy, returning competence for a whole policy area from the EU to the Member States, or securing a UK opt-out from an area of EU law. As regards repatriation through option iii), the Lisbon Treaty inserted into the EU Treaty revision clause the explicit possibility of enacting EU Treaty change to reduce the competences conferred on the EU, but the provision has never been invoked.[235]

EU responses

105. The Dutch former EU official and MEP Michiel van Hulten told us that the Prime Minister might have "a lot of allies in many Member States, including the Netherlands, in the sense of people who think that the EU at the moment is broken and needs to be fixed". Mr van Hulten thought that "If the UK can become a leader of those countries, of those people, [...] a lot can be achieved".[236] Lord Howell said similarly that "lots of quality support exists for a radical overhaul of the EU" in a number of Member States.[237] On the issue specifically of reducing EU regulation, Richard Corbett told us that there was "much sympathy in many other EU countries, and even in the European Commission".[238] In April, Mr Cameron embarked on a series of visits to EU capitals aimed at explaining and building support for his ideas.

106. We conclude that there is support for some of Mr Cameron's reform ideas around the EU, and that there is significant scope for further progress on deepening the Single Market, pursuing free trade agreements with third countries, and improving the quality of the EU's regulatory practice. Pursuing reforms may allow the Prime Minister to be seen to be committed to the UK's EU membership and to build influence. Mr Cameron's main challenge will be to make the case that some elements of his agenda, namely more differentiated integration in the EU and the repatriation of powers from the EU, are workable and can help the Eurozone states, in particular, to overcome the problems they face.

107. In his speech, Mr Cameron referred to the Balance of Competences Review as an exercise which would provide the UK with an "informed and objective analysis of where the EU helps and where it hampers". Mr Cameron suggested that this could be part of a pan-EU process to "examine thoroughly what the EU as a whole should do and should stop doing", in areas including the environment, social affairs and crime. The Government has invited other Member States to contribute to the Review. In April, it was reported that France and Germany had declined to participate (along with most other Member States), because they saw the Review as a domestic political exercise, but that Italy and Sweden had responded to the invitation.[239]

108. In January 2013, it was reported that the Dutch Government planned to convene a commission to review what tasks might be repatriated from the EU to the Member States.[240] The Dutch Ambassador to London, HE Laetitia van den Assum, told us that Dutch ministries were being required to "identify aspects of EU policy that could possibly be addressed more effectively on the national or local [rather than EU] level"in other words, to identify areas of EU competence or policy that fail a "subsidiarity and proportionality test". The Dutch Government plans to prepare a report arising from the exercise by September 2013 and submit it to the European Commission, as part of the EU's 'better regulation' agenda. No other countries are being invited to contribute to the process. Writing in April 2013, Ambassador van den Assum said that the exercise had not yet identified any areas of EU competence or EU legislation in force that failed the test.[241]

109. The Balance of Competences Review seems likely to remain a primarily UK rather than pan-EU exercise. As such, it may still provide a substantive basis for a UK contribution to a debate over EU powers and competences.

110. Our witnesses and interlocutors stressed that, in any negotiation on a "new settlement" for the UK in the EU, two inter-related points would be of particular consequence for other Member States:

First, whether the UK sought EU provisions which would apply to all Member States, or further 'special treatment' for itself. Richard Corbett noted that there have been instances in which powers have been devolved from the EU back to Member States, but that "they [were] all collective devolutions, not specific to one country".[242] Our interlocutors stressed that many Member States felt that they had already accommodated UK demands for 'special treatment' through a variety of tailored arrangements, in Treaty negotiations stretching back twenty years. Interlocutors pointed out to us that the UK already had opt-outs from two of the most high-profile and far-reaching areas of EU integration, the single currency and Justice and Home Affairs (JHA), and that in some respects some non-Member States such as Norway were more integrated with the EU than was the UK. Our interlocutors appeared to be struck in particular by the prospect of the UK opting-out in 2014 from around 130 EU police and criminal justice measures.[243] These kinds of points implied that it was difficult to see what more the UK could be granted. (We publish an FCO list of the UK's various opt-outs and other special arrangements as part of our evidence,[244] and summarise the UK's position as part of Annex 3.) Several witnesses highlighted the position of the large group of newer or prospective Member States, which have all been or are being obliged to sign up to the full EU acquis and might therefore be expected to become resentful if an 'old' Member State were allowed to resile further from it. Overall, Professor David Phinnemore of Queen's University Belfast suggested that the UK might have "at last exhausted the patience of other Member States".[245]

Second, whether the UK sought only to stand aside from new integrative measures, or to renegotiate existing ones. The UK's current opt-outs have arisen when other Member States have sought to provide in the EU Treaties for new integrationist steps. Renegotiating existing provisions would involve reopening what Professor Phinnemore called "a carefully negotiated balance between rights and obligations in which all Member States have had to compromise".[246] The main concern about renegotiation would be the 'unravelling' of the acquisthat is, the prospect that if one Member State sought to resile from one commitment, other Member States would seek to do likewise from others.[247] If the UK were to ask to renegotiate a measure to which it had previously signed up, it might also raise doubts about its reliability as a negotiating partner in future.

111. We found that concerns about a possible UK renegotiation effort arose in connection with the Single Market, in particular. Some of the policy areas which have been mentioned as possible UK targets for renegotiation are regarded in some other Member States as integral parts of the Single Market. Mr Hague told us that he did not believe that a Single Market required uniform social and employment laws;[248] but Richard Corbett said that legislation under the EU's social chapter was "regarded by mostnotwithstanding a willingness to re-examine individual pieces of legislationto be part and parcel of the common rules for the common market".[249] Other Member States may see UK attempts to opt out of or repatriate such legislation as threatening to give the UK an unfair advantage in the Single Marketthat is, the same kind of risk as the Government sees arising for the UK from closer integration in the Eurozone. Michiel van Hulten warned that it was "not realistic" to expect other Member States to agree to UK requests of this kind.[250]

112. Overall, Charles Grant thought that a UK Government might expect to secure "crumbs" from a renegotiation effort, rather than anything more substantial.[251] Richard Corbett told us bluntly that UK requests for "unilateral opt-outs (or requests to reinstate unanimity where qualified majority voting currently applies) will certainly be resisted",[252] and Lord Howell described "another attempt at unilateral British recapture of EU competences" as a "dead end".[253]

113. Given that the Prime Minister and Foreign Secretary have not spelled out in any detail the content of the "new settlement" that they might seek for the UK in the EU, and given that it is over a year, at least, before any major EU Treaty reform process seems likely to get underway, it is impossible to assess the likelihood of the Prime Minister securing the kind of "new settlement" that he might seek. However, we are clear that UK proposals for pan-EU reforms are likely to find a more favourable reception than requests for further 'special treatment' for the UK. We are sceptical that other Member States would renegotiate existing EU law so as to allow the UK alone to reduce its degree of integration, particularly where this could be seen as undermining the integrity of the Single Market. The Government must reckon with the fact that the body of existing EU law is a collective product in which 27 countries have invested.

Questions: process and timings

Would a "new settlement" for the UK require EU Treaty change?

114. In his January 2013 speech, the Prime Minister said explicitly that he wanted to see EU Treaty change in the next few years. This reverses the position which the Government had when it took office in 2010, when it held that the Lisbon Treatywhich took effect in December 2009would render further EU Treaty reform unnecessary in the foreseeable future.[254] Since the Lisbon Treaty came into force, the EU Treaties have been amended three times.[255]

115. The Prime Minister said in his January 2013 speech that EU Treaty change was necessary both to institute necessary measures in the Eurozone and "to entrench the diverse, competitive, democratically acceptable Europe" that he seeks. However, he also said that some of his desired reforms would not need Treaty amendment. In our understanding, the 'in/out' referendum on the UK's continued EU membership which the Prime Minister proposes to hold by the end of 2017 would also not necessarily need to be tied to a new EU Treaty. In his speech, Mr Cameron said that "if there is no appetite for a new Treaty for us all [...] Britain should be ready to address the changes we need in a negotiation with our European partners". The 'in/out' referendum bill published by the Conservative Party on 14 May made no mention of EU Treaty change, and specified simply that the referendum question would be, "Do you think that the United Kingdom should remain a member of the European Union?"[256] With respect to some of the ideas that have been floated as possible elements in a UK "new settlement", we set out in Annex 4 the understanding that we have been able to establish at this stage as to whether they would require EU Treaty change.

116. The nature of some of Mr Cameron's ideas for a "new settlement" for the UK in the EU, and the general terms in which he is currently setting them out, might leave him room to negotiate a "new settlement" without EU Treaty change. However, some of the "new settlement" ideas which have been floated would clearly require EU Treaty amendment.

Is an EU Treaty amendment process likely in coming years?

117. Whether or not the Prime Minister might need EU Treaty change to secure the substance of his desired "new settlement", he has suggested that he would like to see an EU Treaty change process because it would provide an occasion for the UK to pursue its preferences in the EU. He and the Foreign Secretary have implied that by putting the UK in a potential veto position, an EU Treaty amendment process would give it leverage to secure its proposals.[257] When he gave evidence to us in February 2013, the Foreign Secretary appeared to suggest that a post-2015 Conservative Government would initiate EU Treaty change if the process had not arisen already.[258]

118. During 2012, European Council President Van Rompuy and Commission President Barroso floated a number of possible proposals, primarily concerning the Eurozone, that would involve EU Treaty amendment over coming years; and in his January 2013 speech the Prime Minister endorsed President Barroso's call for EU Treaty change.[259] However, speaking in London in February, President Van Rompuy said that he saw "no impending need to open the EU Treaties" and did not "feel much appetite for it around the leaders' table".[260] As we prepared this Report in spring 2013, a debate was underway as to whether the envisaged next stage in the proposed banking union, a single resolution authority, required EU Treaty change or not.[261]

119. Much might depend on the type of EU Treaty change that might be required. Since the Lisbon Treaty came into force in 2009, EU Treaty change may take place through three mechanisms:

so-called 'passerelle' provisions, under which the Member States simply agree by unanimity to amend the Treaties. 'Passerelles' can only be used to amend a limited number of specified EU Treaty provisions.

the simplified revision procedure (under Article 48(6) TEU), under which the Member States agree by unanimity on Treaty changes. This procedure can only be used to amend Treaty provisions concerning the EU's internal policies (Part Three of the Treaty on the Functioning of the EU, TFEU), and cannot be used to increase the competences conferred on the EU.

the ordinary revision procedure (under Article 48(2)-(5) TEU). Under this mechanism, a simple majority of Member States must agree to examine proposed Treaty amendments. Then, a Convention is convened, comprising representatives of Member State governments and parliaments and the European Parliament and Commission. The Convention adopts recommendations on the proposed Treaty amendments, which are then considered by an Inter-Governmental Conference (IGC) of the Member States. The Member States must agree the Treaty amendments by unanimity. A Convention can be omitted from the ordinary Treaty revision process if the Member States so decide by simple majority, with the consent of the European Parliament. The ordinary revision procedure may be used to amend any aspect of the EU Treaties.

Some of what the Prime Minister might seek in any "new settlement" would require EU Treaty changes that could only take place under the ordinary revision procedure (because they fall outside the parts of the Treaties that may be amended through "passerelles" or the simplified revision procedure). The ordinary revision procedure would be required, for example, to amend the Treaty reference to "ever-closer union", or the list of EU competences; to terminate the EP's Strasbourg seat; or to amend or add to one of the protocols that set out the UK's various opt-outs. In a resolution in November 2012, the European Parliament appeared to commit itself to future EU Treaty change via the ordinary revision procedure. It said that preparations for a Convention should start before the June 2014 European Parliament elections, although the Convention itself should not be convened until after those polls.[262]

120. Recent experiences of major EU Treaty reform have been time-consuming and politically scarring for several Member States, because of the rejection of new EU Treaties in national referendums. National electorates have rejected EU Treaties in Denmark (Maastricht, 1992), Ireland (Nice, 2001, and Lisbon, 2008), the Netherlands (Constitutional Treaty, 2005) and France (Constitutional Treaty, 2005). Our sense in Paris, in particular, when we visited in November 2012, was thatfollowing France's rejection of the Constitutional TreatyFrance would like to avoid another major EU Treaty amendment process if possible.

121. Article 16 of the TSCG provides that "within five years, at most" of that treaty entering into force (that is, by 1 January 2018), steps should be taken to incorporate its provisions into the EU legal framework. The European Commission has said that it is working with the Council and European Parliament to integrate some elements of the TSCG into EU secondary law[263] but the FCO told us that, in its view, full incorporation of the TSCG into the EU legal framework would require EU Treaty change.[264] However, Brendan Donnelly and Professor Minford doubted whether a wish to incorporate the TSCG into the EU Treaties would alone be sufficient to trigger an EU Treaty amendment process, if one were not going to take place for other reasons.[265]

122. Several witnesses appeared to believe that the UK's European Union Act 2011 effectively rendered EU Treaty change impossible.[266] The Act requires primary legislation for UK approval of any EU Treaty change, and a referendum on any EU Treaty amendment which would transfer powers or competences from the UK to the EU. It appeared that witnesses might doubt that major EU Treaty change would win even parliamentary approval in the UK; or that they might anticipate that a referendum on any major EU Treaty change would be unavoidable, even if technically the change in question did not trigger the 'referendum lock' instituted by the 2011 Act. Providing evidence before the Prime Minister's January 2013 speech, Professor Phinnemore suggested that:

it is extremely difficult to envisage a future government being able to resist popular and parliamentary calls for a referendum even if it can provide a completely water-tight legal case for ratification of a treaty change being exempted from [the] referendum requirement under the EU Act (2011). Irrespective of the formal focus of the referendum, the vote would be treated by many campaigners and voters as a question of whether the United Kingdom should remain in or alter its relationship with the EU.[267]

Professor Dougan and Dr Gordon contended that, rather than the December 2011 European Council, passage of the European Union Act earlier that year constituted the real watershed in the UK's recent EU policy.[268]

123. Mr Hague made clear that the Government planned to keep the EU Act 2011and its provisions for EU Treaty approval referendumson the Statute Book, separately from the Prime Minister's commitment to an 'in/out' referendum and continuing after any such poll (assuming that the result in any 'in/out' vote was in favour of the UK's continued EU membership).[269] In January 2013, the Labour Party announced that if it were returned to government after the 2015 General Election it would also retain the 2011 Act.[270] Mr Hague therefore suggested that the EU Act 2011 had "entered into the unwritten constitution of the United Kingdom".[271]

124. Given the potential obstacles to a renegotiation as part of an EU Treaty amendment process under Article 48 TEU, at least one commentator has argued that the only way for the UK to oblige the other Member States to renegotiate to reduce its level of integration would be to give notice that it intended to withdraw from the EU.[272] Under Article 50 TEU, which governs the withdrawal process, if a Member State were to give notice of its intention to withdraw, the EU (defined as the remaining Member States) would be required to negotiate with it an agreement governing its withdrawal and possibly its future relations with the Union.[273] However, in these circumstances, there would appear to be no procedural mechanism by which the UK could oblige other Member States to allow it to have any representation or decision-making rights in the EU or participate in any integrated EU policies at all: the starting point in any such negotiation would presumably be that, post-withdrawal, the relevant state would have no such rights and participate in no EU policies; any such rights and participation would be a matter of political and economic interests and negotiation on both sides.

125. The Prime Minister already deployed at the European Council in December 2011 what appears to be his strategy for any future EU Treaty amendment processnamely, to try to secure agreement to UK proposals in return for his consent to EU Treaty change. In December 2011, the strategy contributed to an inability to agree EU Treaty change among all Member States. In this context, we note that recent Eurozone-based Treaties outside the EU framework have moved away from the principle that still applies in the EU, namely that they will come into effect only if ratified by all Contracting Parties:

The ESM Treaty provided that it would come into force when ratified by Contracting Parties subscribing 90% of the ESM's authorised capital stock.

The TSCG provided that it would come into force when ratified by twelve Eurozone states.[274]

Professor Richard Rose of the University of Strathclyde proposed that all future agreements on the expansion of EU powers should include provisions allowing some countries to proceed and others to opt out if the relevant agreement were not ratified by all Contracting Parties. He linked this to the greater use of national referendums on EU Treaty change: he supported this, while acknowledging that "all referendums raise the possibility of defeat". Professor Rose argued that having provisions in place in advance to allow some states to proceed and others to opt out would avoid the situation in which "a single EU country can veto the adoption of an important measure supported by a preponderant majority of countries".[275] Without such provisions, Professor Rose suggested, the possibility of 'losing' a new EU Treaty in a national referendum was prompting the EU to "expand its powers by adopting 'treaty-like' agreements through novel procedures", such as the TSCG.[276] As we noted in paragraph 90, Jean-Claude Piris made a similar argument.

126. The EU Treaties currently state that, if four-fifths of Member States have ratified a treaty amending the Treaties but at least one has "encountered difficulties" in doing so, "the matter shall be referred to the European Council" (Article 48(5) TEU). The Liberal Democrat MEP Andrew Duff, a prominent EU institutional specialist, has proposed that the EU Treaties be amended to provide that future Treaty amendments would come into force when ratified by four-fifths of Member States. Explicitly, Mr Duff made his proposal in response to the UK's EU Act 2011, which he said would "severely delay and complicate all future treaty revision".[277]

127. Many Member States would be reluctant to embark on a major EU Treaty amendment process under current rules, because of the amount of time involved and the risk of any new Treaty failing at the ratification stage, especially if one or more referendums were to be held. There appears to be a growing body of opinion that EU Treaty change requiring unanimous agreement and/or ratification by all Member States may no longer be possible.

Could a "new settlement" be negotiated by 2017?

128. The Foreign Secretary told us that the Prime Minister had set a deadline of November 2017 (half-way through the 2015 Parliament) for holding his planned 'in/out' referendum mainly so that there would be "some time scale" in place before the 2015 General Election, as opposed to "endless uncertainty". Mr Hague also suggested that there was a "window" for EU Treaty change between the June 2014 European Parliament elections and the French and German national elections in spring-autumn 2017 (see Annex 2).[278] The 'in/out' referendum bill published by the Conservative Party on 14 May specified that the poll must be held before 31 December 2017.

129. Mr Hague did not appear to believe that the possible timetable for the Prime Minister's proposed 'in/out' referendum need be affected by a further factor, namely the fact that the UK will hold the rotating Presidency of the Council of the EU between 1 July and 31 December 2017. Mr Hague said that the timing of the possible referendum would "depend [...] on when negotiations are completed"; and that, while the vote could take place earlier than the second half of 2017, he "would not exclude a referendum being held during the presidency". Mr Hague suggested that this would "make for a particularly memorable presidency".[279]

130. Mr Hague said that the precedents of recent EU Treaty change processes suggested that "less than a year and a half or so" was the "normal time scale for Treaty change".[280] The following table sets out the length of recent EU Treaty amendment processes:

Table 2: Length of major EU Treaty change processes, 1995-2009

Treaty

European Council decides to launch Treaty change

Convention opens

Convention concludes

IGC opens

IGC concludes

Treaty signed

Treaty into force

Amsterdam

Dec

1995

N/A

N/A

March 1996

June

1997

Oct

1997

May 1999

22 months

Nice

June
1999

N/A

N/A

Feb
2000

Dec
2000

Feb

2001

Feb
2003

20 months

Constitutional Treaty

Dec
2001

Feb
2002

July
2003

Oct
2003

June
2004

Oct
2004

N/A

34 months

Lisbon

June
2007

N/A

N/A

July

2007

Oct

2007

Dec
2007

Dec
2009

6 months

IGC=Inter-Governmental Conference
The processes that led to the Amsterdam, Nice and Constitutional Treaties were all based on provisions for the holding of further IGCs that were included in the preceding Treaty reform round (the Maastricht and Amsterdam Treaties and the Declaration on the Future of the European Union attached to the Nice Treaty, respectively).
Sources: Neill Nugent, The Government and Politics of the European Union, 7th edition (Palgrave Macmillan, 2010), pp 59-78; www.europa.eu

In his evidence, Mr Hague implied that the Amsterdam, Nice and Lisbon Treaty processes were the relevant precedents in terms of length. From the table, it can be seen that the Constitutional Treaty process was, indeed, an outlier, because it involved a Convention.

131. It is possible that other Member States and/or the European Parliament might wish to launch an EU Treaty amendment process in autumn 2014, as soon as the new European Parliament and European Commission are expected to be in place. This would be before the Balance of Competences Review is due to conclude, and before the UK General Election scheduled for May 2015 (see Annex 2).

132. Precedent suggests that the Prime Minister's envisaged timetable for the negotiation of a "new settlement" between 2015 and 2017 might be achievable: some recent EU Treaties have been negotiated in under two years. However, much would depend on whether the EU Treaty amendment process would involve a Convention: some of the reforms that the Prime Minister might seek as part of a "new settlement" would require the type of amendment process that normally involves a Convention, and we find it difficult to envisage the European Parliament consenting to waive this element of the procedure. The last time that a Convention formed part of an EU Treaty amendment process, on the failed Constitutional Treaty, the process took nearly three years.

Flexible integration: the EU's West Lothian question?

133. The wish for integration in the EU to be more "flexible" has been one of the most prominent themes in the Government's EU policy. By 'flexible integration', we understand the Government to mean a model in which not all Member States participate in all integrated policies; and in which different groups of Member States might participate in different integrated policies. 'Flexible integration' is also referred to as 'differentiated integration' or 'variable geometry'. Although the two have important common elements, 'flexible integration' may be distinguished from 'two-tier' models because, in the latter, two distinct groups of states participate in two more-or-less fixed collections of policies, one group engaging in more integration and the other in less (see paragraphs 67-74, 88-92 and 162-163).

134. Maurice Fraser set out the central dilemma posed by 'flexible integration' to UK governments:

While the flexible, decentralised and non-coercive character of variable geometry most closely reflects traditional UK concerns about sovereignty, concerns about marginalisation, loss of influence or potential vulnerability to caucusing by other Member States has often impelled British governments to caution against fragmentation and the idea of a 'hard core' Europe.[281]

This debate ran throughout our inquiry:

Witnesses such as Graham Avery and Sir Colin Budd were wary of differentiated integration. They argued consistently that the UK should be 'at the table' in all policy areas, in order to exert influence and avoid marginalisation.[282] The Church of England outlined the potential broader risks to the EU arising from flexible integration, namely: possible fragmentation and incoherence; institutional complexity; and a loss of a sense of common purpose.[283]

The Prime Minister and Foreign Secretary have consistently been relaxed about the idea of some Member States engaging in some integrated policies without the UK.[284] The Foreign Secretary told us that "the flexibility for some countries to participate in some arrangements while others do not [...] is a positively desirable thing".[285] Open Europe argued that the UK's economic and political weight meant that it could not be without influence, even if it were not participating in some areas of integration.[286] Against the argument that flexibility might threaten to 'unravel' the EU, the Prime Minister contended in his January 2013 speech that, on the contrary, it would "bind its Members more closely because [...] flexible, willing cooperation is a much stronger glue than compulsion from the centre". Lord Howell, Frank Vibert of the LSE and Professor Rose urged the Government to pursue flexible integration and a more differentiated EU as a means of accommodating diversity, allowing the trialling of policies among only some Member States, and making the Union more responsive and democratic.[287]

135. A number of witnesses pointed out that the EU already accommodates considerable differentiation. For example, only some Member States participate in the Eurozone or the Schengen zone of travel without border checks. Frank Vibert identified seven different types of differentiation that already exist in the EU.[288] Witnesses highlighted, in particular, the 'enhanced cooperation' procedure, under which, in some policy areas and under certain circumstances, nine Member States may proceed with an integrated policy when there is no agreement to do so at the level of the EU as a whole. The 'enhanced cooperation' procedure was established in the Amsterdam Treaty (which came into force in 1999) and has now been used three times, all since 2010 (on cross-border divorce proceedings, the EU's new unitary patent, and the proposed Financial Transaction Tax, FTT). Enhanced cooperation is not permitted to undermine the Single Market, or create trade barriers or discrimination or distort competition between Member States.[289] Several witnesses urged the Government to exploit the potential of the 'enhanced cooperation' procedure to demonstrate the advantages of flexible integration and show leadership.[290] We summarise the picture of 'flexible integration' in and around the EU in Annex 3.

136. Witnesses also said that, despite the amount of 'flexible integration' which exists in practice in the EU, the phenomenon tended to be regarded, in Frank Vibert's words, as a "largely undesirable exception to the preferred norm of a uniform approach to power sharing around common policy objectives and the uniform application of the Treaties".[291] Arguably, this approach is seen in the EU's enlargement policy, under which acceding Member States are obliged to sign up to the full EU acquis as it exists at the time of their accession, without the flexibility that may be available to states which are already EU members when a new integrated policy is launched. (Measures agreed under the enhanced cooperation procedure, however, do not count as part of the EU acquis for the purposes of enlargement.)

137. So far, the EU has accommodated 'flexible integration' essentially within a single institutional framework, with only low-profile adjustments and 'add-ons':

Non-Eurozone states do not participate in meetings of the Eurogroup (Eurozone finance ministers) or the Euro Summit (Eurozone Heads of State or Government),[292] and they have no representation on the Governing Council of the ECB. In the Council of the EU, non-Eurozone states cannot vote on some measures taken under specified Treaty articles relating exclusively to the single currency.

The UK is present at discussions of, but cannot vote on, Justice and Home Affairs (JHA) and Schengen measures in which it is not participating.[293]

All MEPs may vote on everything in the European Parliamentthus, for example, MEPs from non-Eurozone states continue to vote on all Eurozone matters.

138. In its written submission, the FCO explicitly declined to "speculate" on possible or desirable institutional formats for the EU, despite the question being included in our terms of reference.[294] However, the Prime Minister and Foreign Secretary appear to believe that the kind of flexible integration that they seek could be accommodated within the EU's current, essentially unitary, institutional framework.[295] Maurice Fraser argued that this framework could and should be retained.[296]

139. Professor Phinnemore suggested that there could come a point where the content of the UK's EU membership deviated sufficiently far from the 'norm' as to raise questions about its continued enjoyment of more-or-less equal representation and decision-making rights. He described this as the EU's own 'West Lothian question'.[297] Michiel van Hulten suggested similarly that, if the UK were to seek a significant repatriation of powers, other Member States might no longer be "prepared to give the UK the membership rights of the EU on lesser or easier terms than the rest of the European Union".[298] In these circumstances, the prospect might be of formalising different types of membership or other forms of association with the EU.

140. Professor Phinnemore identified five reasons for what he called a "widespread reluctance" in the EU to formalise tiers of membership, namely:

i) the difficulty of securing agreement on the "content" of different tiers of membership;

ii) the difficulty of resolving issues of differentiated representation and decision-making rights;

iv) the implications of the creation of formalised tiers of membership for the EU's enlargement practice; and

v) the possibility that a clearer association between a state's assumption of particular obligations, and its enjoyment of particular institutional representation and decision-making rights, would trigger demands for the latter from non-Member States which fulfil the relevant obligations.[299]

141. With respect to the difficult institutional questions involved, we note that Open Europe called for a "formalised EU structure based on different modes of membership" but did not suggest any concrete institutional arrangements.[300] Similarly, Frank Vibert presented us with the most radical ideas about reorganising integrated policies into multiple 'clusters', as an alternative to the current unitary acquis; but he did not appear fully to spell out any accompanying pan-EU institutional arrangements. He proposed that decisions in the Council of the EU should be made subject to approval by national parliaments, apparently alongside a continuing role for the EP.[301]

142. With respect to the "content" of different tiers of membership, we note that in April 2013 the Government announced that it was launching an ECJ case against the planned Financial Transaction Tax, on the grounds that it would have extra-territorial effects beyond the eleven participating Member States.[302] This suggests to us the potential difficulties involved in reconciling flexible integration in some policy areas with the demands of a pan-EU Single Market.

143. We agree with the Prime Minister that, in principle, a more flexible and differentiated model of integration might accord better with the demands of diversity and democratic consent in the EU than the traditional homogenising model. However, the demands of a pan-EU Single Market without discrimination would appear to place limits on the degree of flexibility that might be achievable. The institutional implications of more differentiated integration are also complex.

'In/out' referendum

144. After EU reform and the negotiation of a "new settlement" for the UK, the third element of the agenda that Mr Cameron set out in his January 2013 speech was an 'in/out' referendum on the UK's continued EU membership. In his speech, Mr Cameron said that the legislation enabling the planned referendum would be drafted before the 2015 General Election and enacted by the end of that year if a Conservative Government were elected. The Conservative Party published a draft 'in/out' referendum bill on 14 May 2013.[303] In January 2013, explaining his decision to offer an 'in/out' referendum, the Prime Minister stated that the question of remaining in the EU or withdrawing "at some stage will have to be put" to the UK electorate. Under these circumstances, Mr Cameron said that he believed in "confronting this issueshaping it [and] leading the debate". Mr Cameron offered two further reasons for holding an 'in/out' referendum:

it would offer the opportunity "to settle [the] European question in British politics"; and

committing to hold an 'in/out' referendum would help to stem popular disaffection with the EU in the UK, since, in the Prime Minister's view, such disaffection is being driven partly by frustration about the lack of a popular vote on the EU.

145. The Prime Minister and Foreign Secretary have also implied that holding an 'in/out' referendum would increase the UK's leverage in any future negotiations with its EU partners on a "new settlement".[304] Arguably, the Government can be seen to have 'raised the stakes' successively as regards UK agreement to EU Treaty changefrom requiring primary legislation or possibly approval in a referendum for UK ratification (under the EU Act 2011), to requiring agreement to UK proposals at the negotiating stage (at the December 2011 European Council), to raising the prospect of UK withdrawal from the EU. Providing evidence after the December 2011 European Council but before the Prime Minister's 'in/out' referendum commitment, Nigel Farage MEP, Ruth Lea and Professor Minford had all argued that the idea of a substantially different "new settlement" for the UK in the EU was, in Ms Lea's term, a "chimera", because they did not see the UK as having sufficient leverage with its EU partners to bring it about.[305]

146. Supporters of the Prime Minister's commitment to an 'in/out' referendum typically argue that raising the prospect of the UK leaving the EU will significantly increase the prospects of a UK Government securing the kind of "new settlement" with its EU partners that it might seek. They argue that other Member States will wish to keep the UK in the EU because of the UK's:

large economy, which provides a significant market for the rest of the EU and adds considerably to the EU's international economic weight;

net contribution to the EU budget;

international presence and influence, including its veto-wielding seat on the UN Security Council;

decisive contribution to the EU's security and defence policy;

liberal influence on Single Market, trade, regulatory and other economic policies (for some Member States); and

balancing presence with respect to the Franco-German tandemproviding a 'third party' for those two Member States and, for others, mitigating against Franco-German dominance.

A UK exit would also be likely to damage the EU's international standing and 'soft power', as a successful international organisation to which countries wish to belong.[306] Against this background, Mats Persson argued that the UK Government could simply spell out to its EU partners what it thought it needed to keep the UK in the EU.[307]

147. Other policy-makers and observers have suggested that raising the prospect of exit might not weigh negotiations in the EU decisively in the UK Government's favour, and might instead reduce its influence. For example, Sir Howard Davies was concerned lest the prospect of a UK exit "result[ed] in a long, sad farewell where quite a lot of British economic interests fall by the wayside".[308] Nucleus thought that an ongoing debate about the UK's fundamental relationship with the EU undermined the Government's efforts to enhance the UK's influence in it.[309] Speaking in London in February 2013 about the Prime Minister's position, European Council President Van Rompuy asked rhetorically: "How do you convince a room full of people, when you keep your hand on the door handle? How to encourage a friend to change, if your eyes are searching for your coat?"[310] However, the Foreign Secretary told us the same month that he did not think that the Prime Minister's speech had diminished the UK's influence in the EU.[311] Although it was probably too soon for any effect to have become evident, the VoteWatch Europe data show that the proportion of votes in the Council of the EU in which the UK was in a minority was only slightly higher in the period to March 2013 than in the period to July 2012.[312] Several of the EU policy 'wins' for the Government that we outlined in paragraph 51, such as the agreement on the 2014-2020 Multiannual Financial Framework, took place after the Prime Minister's speech.

148. Our sense is that other Member States want the UK to remain an EU Member. However, we do not think that a UK Government could successfully demand 'any price' from other Member States for promising to try to keep the UK in the Union.

Uncertainty impact?

149. Some business leaders have expressed support for the Prime Minister's ambitions to negotiate a "new settlement" for the UK in the EU.[313] However, some in the business community have distinguished Mr Cameron's 'renegotiation' agenda from his 'in/out' referendum plans, and have expressed concern about the possible impact of uncertainty about the UK's continued EU membership on the UK investment climate, especially given that there may be up to four years before the possible poll. For example, Sir Martin Sorrell, Chief Executive of the advertising group WPP, has said that potentially holding an 'in/out' referendum "adds to uncertainty" and "can't be positive" for the UK investment climate.[314] Other business voices have disputed the importance of the UK's EU policy alone in determining investment decisions.

150. The Prime Minister and Foreign Secretary have argued that uncertainty over the UK's place in the EU exists in any case, regardless of the Prime Minister's commitment to an 'in/out' referendum. The Foreign Secretary further argued that the Prime Minister's policy potentially reduced uncertainty, by establishing a potential timeframe for holding a referendum. Mr Hague told us in February that he did not consider that the Prime Minister's position risked causing 'investment blight' for the UK.[315]

151. We recommend that the Government should conduct and publish an assessment of the impact on business investment in the UK of the Prime Minister's commitment that a Conservative Government elected in the 2015 General Election would hold an 'in/out' referendum on the UK's continued EU membership by the end of 2017.

What would 'out' mean?

152. The EU Treaties provide for two distinct processes for:

renegotiating the EU Treaties among all Member States, on the assumption that all wish to remain members and to reach a new EU Treaty settlement to which all can sign up (Article 48 TEU); and

negotiating a withdrawal agreement between a departing Member State and the 'rump' EU (Article 50 TEU).

Under Article 50 TEU, the negotiation of a withdrawal agreement is triggered when the Member State concerned gives notice to the European Council that it has decided to leave the EU. Under these circumstances, Article 50 obliges the EU (defined as the remaining Member States) to negotiate with the departing state an agreement governing its withdrawal, "taking account of the framework for its future relationship with the Union". During the negotiation, the withdrawing Member State could continue to participate in EU business as normal on all other matters, but it would not participate in Council discussions or decisions on its own withdrawal.[316] In the EU, the withdrawal agreement would require the support of a qualified majority in the Council and the consent of the European Parliament. If no withdrawal agreement could be concluded, the Member State's exit from the EU would take effect in any case two years after it gave notice of its intention to leave, unless the European Council (by unanimity) and the departing Member State decided on an extension of this period.[317]

153. In our understanding, under the Article 50 withdrawal process a state leaving the EU would not negotiate the terms of its post-exit relationship with the Union until after it had given notice that it wished to leave and triggered the Article 50 process. This would apply to matters including trade. We asked the Foreign Secretary whether it was the Prime Minister's policy to negotiate what would be the terms of the UK's trade with the EU as a non-Member State before any 'in/out' referendum were to take place. Mr Hague replied:

No. [...] In the event of the majority of British voters deciding that the United Kingdom should leave the EU in a referendum the terms of the UK's trade with the EU would be resolved under the process set out in Article 50 of the Treaty of the European Union.[318]